Loan means lending money from one individual or entity to another. A loan has three components – principal or the borrowed amount, rate of interest and tenure or duration for which the loan is availed. It is one of the primary financial products of any bank.
Loans are also classified on the basis of repayment period.
Types of loans: The common types of loans that people avail are:
- Home Loan
- Car Loan
- Education Loan
- Personal Loan
- Business Loan
- Gold Loan
Personal Loans:
Most banks offer personal loans to their customers and the money can be used for any expense like paying a bill or purchasing a new television. Generally, these loans are unsecured loans. The lender or the bank needs certain documents like proof of assets, proof on income, etc. before approving the personal loan amount. The borrower must have enough assets or income to repay the loan. In case of personal loans, the application is 1 or 2 pages in length. The borrower gets to know about the denial or approval of the loan within a couple of days. You must remember that the rate of interest associated with these loans can be on the higher side.
Credit Card Loans:
When you are using a credit card, you must understand that you will have to repay for all the purchases you make at the end of the billing cycle. Credit cards are accepted almost everywhere, even when you are travelling abroad. As it is one of the most convenient ways to pay for the things you buy, it has become a popular loan type.
In order to apply and avail a credit card, all you need to do is fill out a simple application form provided by the card issuer. You can also choose to apply for a credit card online. These plastic cards come with great rewards and benefits. It’s the loan where you need to repay on time but you are also handsomely rewarded for using it.
Obviously, there are pitfalls associated with this type of loan. You must understand that there is a high amount of interest on the amounts you borrow on your credit card. .
Home Loans:
When you wish to purchase a house, a home loan can help you to a great extent. It provides you the financial support and helps you buy the house for yourself and your loved ones. These loan generally come with longer tenures (20 years to 30 years). The rate offered by some of the top banks in India with their home loans start at 8.30%. Your credit score is checked before the loan request is approved by the lender. If you have a good credit score, there is a fair chance that you will be able to enjoy lower rates of interest with your home loan.
Home loans are primarily taken for buying new homes. However, these loan can also be used for home renovations, home extensions, purchasing land property, under-construction houses, etc.
Home Loan depends on following factors
- Your Salary or Your Business turnover
- Your age
- Your Existing Loans
- Your Credit Score
- The Property you are buying & Own contribution to pay 20% of the property
- Location , approvals of the property
Your Salary : You should be earning enough to pay the 80 lac EMI.
Your Age : Based on your age, maximum Loan tenure will be decided. Before you retire i.e 58 years you should be clearing the loan.
Existing Loans : If you have any exiting Loans, you will be paying EMI so you overall eligibility would come down for the next loan.
Credit Score : Banks/NBFC would look at your credit report and based on how you have paid will decide to go if they want to give you loan
Property : When you are asking for Rs 80 lac loan, it would mean at least the property should be Rs 1 crore. Technically the price of the property should support it and you have to pay 20% from your self funding and 80% you can take loan. It should not be like for Rs 10 Lac property you are paying Rs 1 Crore.
Approvals of the property : Based on the Location and type of approvals and amount of deviation while constructing banks would take a call if they will be giving loan or not.
So based on the property you have selected and based on your financial profile you need to select the bank and the loan product. Some not so famous banks will have better products for certain properties.